Insurance companies will be banned from offering better deals to new customers and putting up prices for existing ones.
People renewing their home or motor insurance will pay no more than they would as a new customer from January.
The new rules have been confirmed by the City regulator, the Financial Conduct Authority (FCA), following years of complaints.
The FCA says the move will save loyal customers an estimated £4.2bn over 10 years.
But it admitted it could spell the end of the cheapest deals for new customers.
Gareth Shaw, Head of Money at Which?, said:
“For far too long, insurance companies have employed sharp pricing tactics to lure in customers before hitting them with eye-watering price hikes and exorbitant premiums, so it is right that measures will finally be introduced to help put an end to these unfair practices.
“It is vital that the regulator keeps a close eye on insurance firms to ensure they don’t find new ways to exploit customers and should be ready to take further action where necessary.
“Greater transparency is still needed on what factors insurance firms are using to set prices and the FCA should carry out further work looking at whether there are other practices firms should be prohibited from using.”